Kelowna Real Estate Market News

Canadian Mortgage Forecast March 2018 from BCREA

The BC Real Estate Association has published its latest forecast for Mortgage Interest Rates today.

Mortgage Rate Outlook

Canadian mortgage rates have continued 2017’s upward trend. The five-year qualifying rate for insured mortgages bumped up 15 basis points to 5.14 percent while discounted rates offered by lenders increased similarly to 3.39 percent. The increases were driven by the earlier than expected rate increase by the Bank of Canada in January. The Bank has now raised interest rates three times since last summer, with its key policy rate sitting at 1.25 percent.

The Bank’s next move and the impact on mortgage rates hinges on how Canadian inflation evolves over the next two years. Our baseline forecast, which lines up similarly with the Bank of Canada’s, assumes the Canadian economy will return to its full employment level this year. That would mean inflation returning to the Bank’s 2 percent target with the overnight target rate gradually rising to its neutral level of around 3 percent over the next two years.

However, it is important to also examine mortgage rates under alternative scenarios for inflation and the economy. One scenario could see core inflation overshooting the Bank’s target as economic growth escalates above trend, putting extra pressure on wages and prices. In that scenario, the Bank would likely tighten rates much more aggressively. If inflation approaches the upper-end of the Bank’s 1 to 3 percent range, we would expect discounted mortgage rates to rise to about 4 percent by the end of this year and to 4.5 percent by 2019.

Interest Rate Outlook

The Canadian economy is at or very close to full-employment, meaning there is little room for Canadian firms to expand output without putting undue pressure on inflation. There are signs core inflation is already firming up. Two of the Bank’s three core inflation measures are closing in on the Bank’s 2% target and all three measures have increased significantly in the past six months. Absent any unforeseen challenges to the Canadian economy, monetary policy will be biased in the direction of higher interest rates.

The BC Real Estate Association are forecasting the Bank of Canada will follow up its January rate increase with at least one more rate increase in 2018. However, it will likely hold off until later in the year so policymakers can properly assess the impact not only of its own tightening over the past year, but also the impact of newly implemented B-20 guidelines on mortgage qualification rules and the heightened risk to Canadian exports from US trade policy.

Trish Cenci

Personal Real Estate Corporation

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